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2024 (3) TMI 931 - HC - Insolvency and BankruptcyValidity of declaring of the respondent as a Secured Creditor - retention of shares held as security - primary grievance of the petitioner is that the NCLT ought to have decided the Liquidator s application under Section 25 of the Insolvency and Bankruptcy Code (IBC), 2016 prior to deciding the application under Regulation 21-A of the IBBI (Liquidation Process) Regulations, 2016 - direction to hand over the share certificates - HELD THAT - The provisions of Regulation 21-A of the 2016 Regulations are to be examined. Clause (1) of the same provides that a Secured Creditor shall inform the Liquidator of its decision to relinquish its security interest to the liquidation estate or realize its security interest as the case may be. Alliance has filed a Form-D application expressing its interest to realize its security interest. The Liquidator, upon expiry of 30 days from the liquidation commencement, Alliance having not intimated its decision, filed the application under Regulation 21-A for presuming the assets covered under the security interest to be part of the liquidation estate - irrespective of the claim of Alliance to the pledged shares being sub judice in a separate suit, the fact remains that the effect of the order under Regulation 21-A is that the assets covered under the security interest that is the said shares, are presumed to be part of the liquidation estate. By virtue of the order passed under Regulation 21-A treating the assets covered under the alleged security interest of Alliance (the shares-in-question) to be part of the liquidation estate, the interest of the secured creditors, be it the petitioner or others, cannot be adversely affected in any manner; rather, such order can only enure to the benefit of the secured creditors. The effect of the order is that, despite the claim of security interest of Alliance in the said shares, those are made a part of the liquidation assets, thereby subjecting the sale proceeds obtained after sale of such shares to the rigours of Section 53 of the IBC - Section 53 provides the order of priority for distribution of the proceeds from the sale of the liquidation assets. If the shares are treated to be liquidation assets and are sold as such, the proceeds from the said sale will be a part of the hotchpot of the liquidation assets and will be distributed in terms of Section 53 where the secured creditors will get their dues in accordance with the order of priority stipulated therein. The petitioner claims to be a secured creditor and, hence, could only be benefited, and not suffered, from the order under Regulation 21-A. There are no irregularity in the order impugned herein. Since the Liquidator s repeated efforts directing Alliance to hand over its shares failed, Section 25 of the IBC has been rendered academic. Section 25, it is to be noted, does not envisage any adjudication of the rights of a secured creditor to any of the assets. Only if a secured creditor in the liquidation proceedings realizes its security interest in the manner specified in section 52 of the IBC, under sub-section (1)(b) of the said Section, he shall inform the Liquidator of such security interest and identify the assets subject to such security interest to be realized, as per the provisions of sub-section (2) of Section 52 - the scope of an adjudication of the security interest during a liquidation process is provided only in Section 52(3). If Alliance had succeeded in having its way under Section 52(1)(a), it would not be the bounden duty of the Liquidator to adjudicate on the said rights under sub-section (3) of Section 52. However, since such bid of Alliance has failed by way of the impugned order under Regulation 21-A, presuming the shares-in-question to be a part of the liquidation asset and directing sale thereof, there cannot arise any question of such adjudication, since, in any event, the shares become a part of the liquidation estate, sufficiently subserving the interest of all secured creditors, including the petitioner (who claims to be a secured creditor), who would be getting their dues in order of priority under Section 53 of the IBC. The petitioner cannot claim to have been aggrieved in any manner, as the order passed under Regulation 21-A did not adjudicate on the rights of Alliance in respect of security interest to the disputed shares. Rather, the Liquidator has rightly submitted that the said shares would be shown in the auction sale to be subject to the pending suit. The argument of the petitioner that the order is devoid of reasons is entirely misplaced. In the absence of any adjudication on the issue of Alliance s rights to the pledged shares, there arises no question of any reason being provided for such non-existent adjudication - there is no scope of interference in the present writ petition. Petition dismissed.
Issues Involved:
1. Whether the NCLT should have decided the Liquidator's application under Section 25 of the IBC before the application under Regulation 21-A of the IBBI (Liquidation Process) Regulations, 2016. 2. Whether Alliance Broadband Services Pvt. Ltd. (respondent no. 3) was correctly declared a Secured Creditor. 3. Whether the NCLT acted without jurisdiction and violated principles of natural justice. 4. Maintainability of the writ petition in light of the availability of an alternative remedy under Section 61 of the IBC. Summary: Issue 1: Decision Sequence of Applications The petitioner argued that the NCLT should have prioritized the Liquidator's application under Section 25 of the IBC over the application under Regulation 21-A. The court noted that Regulation 21-A was applied correctly, as it presumes assets covered under security interest to be part of the liquidation estate when the secured creditor fails to exercise security interest within 30 days. Issue 2: Declaration of Alliance as Secured Creditor The petitioner contended that Alliance was wrongly given the status of a Secured Creditor regarding certain shares. The court observed that the impugned order did not adjudicate Alliance's rights but presumed the shares to be part of the liquidation estate, benefiting all secured creditors, including the petitioner. Issue 3: Jurisdiction and Natural Justice The petitioner claimed the NCLT acted without jurisdiction and violated principles of natural justice by not providing reasons for declaring Alliance a Secured Creditor. The court found no arbitrariness or mala fides in the NCLT's order and held that the order under Regulation 21-A did not adjudicate Alliance's rights, thus no reasons were required for such non-existent adjudication. Issue 4: Maintainability of the Writ Petition The court addressed the maintainability of the writ petition, emphasizing that an appeal under Section 61 of the IBC is the appropriate remedy. The court highlighted that the petitioner could still file an appeal before the NCLAT, and the writ petition was dismissed without any order as to costs. Conclusion: The writ petition was dismissed, affirming that the NCLT's order under Regulation 21-A was correct and did not adversely affect the petitioner. The petitioner was advised to seek remedy through an appeal before the NCLAT.
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